Older persons today appear more likely to enter retirement in debt than in pastdecades, according to a working paper from the National Bureau ofEconomic Research.

The NBER paper – Debt and Financial Vulnerability on theVerge of Retirement – is co-written by AnnamariaLusardi, Olivia S. Mitchell and Noemi Oggero.

While the massive debt run-up by Americanhouseholds has been noted in a number of previous studies, farless work has been done evaluating older Americans' debt pattern orthe determinants of indebtedness close to retirement.

Milken ranked 381 metropolitan areas for elderly adults usingmetrics not for a relaxing retirement but for an active one.

The paper, which analyzed older individuals' debt and financialvulnerability using data from the Health and Retirement Study (HRS)and the National Financial Capability Study (NFCS), finds thatrecent cohorts have taken on more debt and face more financialinsecurity, mostly due to having purchased more expensive homeswith smaller down payments.

The paper examines three different cohorts (individuals age56–61) in 1992, 2004, and 2010 to evaluate cross-cohort changes indebt over time.

The paper defines these three cohorts as the “HRS baseline”cohort, which was born 1931–1941; the “War Babies” group, which wasborn 1942–1947; and the “Early Boomer” group, which was born1948–1953.

The percentage of people age 56–61 arriving at the verge ofretirement with debt rose from 64% in the HRS baseline group to 71%among Early Boomers, according to the paper's findings.

Additionally, the value of debt held rose sharply over time.

While the median amount of debt in the baseline group was about$6,800, it more than quadrupled among War Babies and almostquintupled among Early Boomers (respectively $31,200 and $32,700,all in 2015 dollars).

The paper also finds that the debt distribution appears to havechanged across cohorts.

In the baseline group, the top quartile of the debt distributionheld around $51,000 in debt, while in the two cohorts surveyed morerecently, this same quartile of the population held more thandouble ($106,000) and almost triple ($146,800) that amount.

“Depending on the interest rate charged on this debt, thesefamilies would be very likely to face sizeable monthly debtrepayments and to carry debt well into retirement,” the paperstates. “As debt levels increase, borrowers' ability to repaybecomes progressively more sensitive to drops in income as well asincreases in interest rates.”

One factor driving this rise in debt across time is the greatervalue of people's primary residence mortgages for the cohortssurveyed more recently, according to the paper.

According to the research, the percentage of people age 56–61having mortgage debt has risen by eight percentage points, from 41%in the baseline group to 49% among Early Boomers. Moreover,mortgage debt amounts grew as well.

“Regardless of whether older persons are over-indebted, thelarger stock of household debt has important macroeconomicimplications,” the paper states. “In fact, people on the verge ofretirement will be more sensitive to fluctuations in interestrates—particularly if they are unexpected—and the current lowinterest rate environment is likely to change.”

The paper also finds that factors associated with greaterfinancial vulnerability include having had more children, being inpoor health, and experiencing unexpected large income declines.While factors reducing exposure to debt include having higherincome, more education, and greater financial literacy.